For years the FCC has been inching toward imposing net-neutrality rules, which are sold as a way to ban Internet service providers from discriminating against content providers. In reality such rules would dictate what ISPs (Internet Service Providers) like Comcast and Verizon can charge for their services. The Silicon Valley crowd particularly likes the net-neut idea, because it would mean cheaper access for companies like Google and Netflix, who are heavy bandwidth users. President Obama’s announcement is likely to delight them-and liberal groups supporting supposed Internet “fairness” – because now FCC Chairman Tom Wheeler will be under enormous pressure to do the White House’s bidding.
But the Internet cannot function as a public utility. First, public utilities don’t serve the public; they serve themselves, usually by maneuvering through Byzantine* regulations that they helped craft. [*Byzantine: excessively complicated, typically involving a great deal of administrative detail]. Utilities are about tariffs, rate bases, price caps and other chokeholds that kill real price discovery and almost guarantee the misallocation of resources. I would know; I used to work for AT&T in the early 1980s when it was a phone utility. Its past may offer a glimpse of the broadband future. Innovation gets strangled.
The president’s statement Monday was not the first time he has promoted net neutrality, just the most emphatic. At an Oct. 9 town-hall meeting in Los Angeles, he said: “I made a commitment very early on that I am unequivocally committed to net neutrality. I think . . . it’s what has unleashed the power of the Internet, and we don’t want to lose that or clog up the pipes.” Then he, however awkwardly, implored the FCC to act: “My appointee, Tom Wheeler, knows my position. Now that he’s there, I can’t just call him up and tell him exactly what to do. But what I’ve been clear about, what the White House has been clear about, is that we expect whatever final rules to emerge to make sure that we’re not creating two or three or four tiers of Internet.”
Maybe Mr. Wheeler didn’t get the message last month and the White House thought he needed some public hectoring. Or maybe he has been only sidling up to the idea because he knows deep down that network neutrality is a fuzzy concept that can’t possibly exist in nature. Comcast might want to charge Netflix customers $5 a month for a fast lane, but if Google Fiber is in town and offers Netflix with no extra charges, that’s what customers will choose.
The beauty of competition is that you get network neutrality for free. AT&T cut long-distance rates in the 1980s when MCI and Sprint started competing fiercely. Calling from San Francisco to New York became cheaper than calling from San Francisco to San Jose, because California tariff prices were still highly regulated. The same thing happened to international rates once Skype offered voice and video connections free online. And it is no surprise that AT&T hurried to offer its own gigabit Internet connection in Austin, Texas, as soon as Google Fiber showed up. Now everyone in Austin has access to a fast lane.
And the rest of us? “At 25 Mbps, there is simply no competitive choice for most Americans,” Mr. Wheeler said in a September speech. Treating the Internet like a utility would ensure things stay that way.
The president might think he’s doing a favor for Americans, but utilities are utopias only on paper. With no competition to stimulate investment, capabilities will wither. Eventually a federal bureaucracy will be needed to help allocate the scarce broadband resources. In that vaguely neutral world, everybody gets access to the same resources. Well, except for the government – it of course will need special, superfast access. You want cheap, ubiquitous and naturally neutral broadband? Promote competition and outlaw utilities.
Mr. Kessler, a former hedge-fund manager, is the author, most recently, of “Eat People” (Portfolio, 2011).
Published Nov. 10, 2014 at The Wall Street Journal. Reprinted here Nov. 13, 2014 for educational purposes only. Visit the website at wsj .com.
1. What is the main idea of Mr. Kessler’s commentary?
2. Mr. Kessler concludes by asserting: “The president might think he’s doing a favor for Americans, but utilities are utopias only on paper. With no competition to stimulate investment, capabilities will wither. Eventually a federal bureaucracy will be needed to help allocate the scarce broadband resources. In that vaguely neutral world, everybody gets access to the same resources. Well, except for the government – it of course will need special, superfast access. You want cheap, ubiquitous and naturally neutral broadband? Promote competition and outlaw utilities.”
Are you surprised by this assertion? Explain your answer.
3. Do you argree or disagree with Mr. Kessler’s opposition to President Obama’s call for “net neutrality”? Explain your answer.